Rowing in unison

After assets at Invesco UK funds plunged more than 30 percent in two and a half years, Invesco Global chief executive Michael Benson decided that enough was enough. In May he merged the retail and institutional teams and fired 18 of Invesco UK’s 32 London-based equity fund managers. Then he shipped the remaining 14 from their City offices to Henley-on-Thames, home of England’s annual summer rowing regatta in rural Oxfordshire.

The U.K. business of Invesco, a subsidiary of London-based, $318 billion-in-assets Amvescap, surely needed a change of perspective. Benson, who declined to discuss his plans with Institutional Investor, watched as U.K. assets dropped from £29 billion ($46.5 billion) at the end of 2000 to £21 billion as of June 30, 2003. Almost a third of the decline is attributable to a once-high-flying growth fund that sharply underperformed even its ravaged peers after the Internet bubble popped. In addition to the haircut the equity markets have given all funds, Invesco UK has been hit by redemptions from unhappy investors.

Although his mostly retail company is still rowing against the tide, Benson, who was promoted to head Invesco Global in 1997 after leading its Asian efforts for three years, does have some real strengths. About £8.6 billion of his U.K. assets carry the Invesco Perpetual brand -- well respected among individual investors for its value equity funds. (The Perpetual group has been based in Henley for many years, so it made sense to move Invesco’s London portfolio managers there.) Overall, 45 of Invesco’s 81 funds are rated AA or AAA by Standard & Poor’s.

“Invesco has suffered some hangover from being thought of as a growth house,” says Philip Middleton, a specialty-finance analyst at Merrill Lynch. “But Perpetual has always managed money in a different way and is achieving quite good new-business flows. It’s a strong retail house.”

Mostly, it’s the Invesco European Growth Fund that has impeded progress. The fund grew to £4 billion in assets at its peak in 2000, on the back of aggressive marketing and stellar performance. But in the three years ended June 30, the fund fell 62 percent, versus the MSCI Europe index’s 45 percent decline.

Invesco UK is now barely profitable. In the first half of 2003, operating profits were £8.1 million on revenues of £82.5 million, down from profits of £21.9 million in 2002.

Benson has a way, albeit an expensive one, to get back in the race. In December 2000, when money managers were still fetching handsome prices, Amvescap (74 percent of whose assets now come from the U.S., where it owns AIM Investments and Chancellor LGT Management) paid a hefty 11 percent of assets -- £1.1 billion -- for 30-year-old Perpetual. The industry average at the time was about 3 percent.

That said, Perpetual has allowed the firm to jump into the upper echelon of U.K. retail fund management. Says Mike Webb, CEO of Invesco Perpetual, “It would have taken Invesco years to get into the top five.” With the Perpetual brand, Invesco UK now commands nearly 5 percent of the U.K. retail market, trailing only market leader Fidelity Investments, which claims a 7 percent market share.

Another potential source of growth, Invesco’s institutional business, which has less than £4 billion in assets, has delivered a mixed performance. Invesco’s flagship institutional balanced fund ranked slightly below the median for the 12 months ended June 30, according to Russell/Mellon CAPS.

As with the retail-oriented European Growth Fund, Invesco itself has some reputation issues to overcome in the institutional business. Some pension fund trustees remember the firm’s association with disgraced British publisher Robert Maxwell and his raid on the pension fund of the Mirror Group. In 1993, U.K. regulators fined Invesco a then-record £750,000 for 55 management and procedural failings, some of which involved the company’s handling of assets belonging to Maxwell-related pension funds.

That was a long time ago, but the memory leaves some pension trustees reluctant to jump on board.

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